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California's Two Largest Utilities Part Ways in Power Crisis Solution
By Michael Liedtke, The Associated Press
SAN FRANCISCO (AP) - When Gov. Gray Davis offered a hand to California's two largest utilities as they cried for help, he was met with decidedly different reactions.
Southern California Edison cautiously grabbed hold and entrusted its survival to the same government that helped create an electricity market that has drained more than $12 billion from the utilities since May.
Pacific Gas and Electric filed for bankruptcy.
SoCal Edison is positioned to recoup most of the $3.5 billion it says it lost buying high-priced electricity on the wholesale market. In the process, the utility stands a good chance of restoring its tarnished reputation on Wall Street.
To get the money, SoCal Edison's deal with Davis still must gain the approval of state lawmakers and state and federal power regulators, none of which will be easy, analysts warn. The agreement requires the utility to sell its transmission lines to the state for $2.76 billion in return for rate increases designed to get it back on its feet.
PG&E is betting that bankruptcy will give it a better chance of recovering $8.9 billion in electricity costs it couldn't pass on to customers because of a rate cap the utilities agreed to as part of the 1996 deregulation law.
It's a high-risk gamble that will throw the utility into limbo for three or four years, bankruptcy experts predict, as PG&E's management and 30,000 creditors hash out a reorganization plan. "We have a clear divergence in the roads taken" by the utilities, said Standard & Poor's utility analyst Richard Cortright. "PG&E is taking the one less traveled. We shall see whether it makes a difference."
One big difference already is emerging on Wall Street. Since PG&E's April 6 filing for Chapter 11 bankruptcy, its parent company's stock has fallen 24 percent to $8.65. Since SoCal Edison reached its deal with Davis, its parent company's stock has climbed 36 percent to $12.
For much of the past week, Davis ridiculed PG&E as a spoil sport that won't shoulder any responsibility for supporting the 1996 law, which helped the utilities make a combined profit of $2.5 billion in the two years before a combination of factors caused them to start hemorrhaging money.
"I genuinely believe they are in denial," the governor said.
PG&E officials insist the state never offered an acceptable solution to a crisis. "Anyone who thinks a decision to go to bankruptcy court for protection is the easy way out, particularly for a company over 100 years old, does not understand how difficult ... this was," said Dede Hapner, PG&E's vice president of regulatory relations.
The final straw for PG&E came in late March when the state's Public Utilities Commission ordered an accounting change that would undermine the utility's argument for retroactive rate increases. The change also would force its holding company, PG&E Corp., to absorb a $6.9 billion charge against earnings.
In a March 30 filing with the Securities and Exchange Commission, PG&E blasted the PUC's action as an "unconstitutional taking of the utility's property" and vowed to challenge it. No one knew at the time that PG&E was making a veiled reference to bankruptcy court, where the utility is now fighting to void the PUC's proposed bookkeeping change.
"I have been an investment banker for 18 years," said one of the state's negotiators, Joseph Fichera. "And I can't recall another time when a business leader chose bankruptcy over a negotiated settlement that resolved all of a company's credit concerns."
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